Loan growth and stable asset quality to bring modest growth for Singapore banks

NIM direction and dividend yield will be its key driver for the new year.

Singapore banks will see modest growth in 2020 buoyed by a 4-5% loan growth and stable asset quality, although profits could stay “largely” flat, reports OCBC Investment Research (OIR).

A key driver for bank sector earnings is said to be its net interest margin (NIM) direction, where two-thirds of banks’ total income is derived from net interest income.

“Whilst the sector’s net interest margin should continue to reflect the lagged pass-through from last year’s Federal Reserve interest rate cuts in the upcoming quarters, concerns over NIMs compression may ease later this year assuming the current base case of a pause in Federal Reserve interest rate remains unchanged,” OIR stated.

Non-interest income growth momentum has been a silver lining supporting the bottom line for the sector, and is projected to continue aiding growth this year. Asset quality trends are expected to remain benign (sector NPL ratios ~1.5-1.6%) with little risks, whilst banks are wary of degradation in asset quality.

Also read: Credit costs to weigh on Singapore banks in 2020

Dividends are also expected to provide some support to the sector as it will likely to remain stable with an average of around 5% forward yield.

“[A]lthough further comments could be made on the possibility of higher capital payout given high capital ratios. As of end September 2019, CET1 ratios of DBS and UOB are 13.8% and 13.7% respectively, above previous indications of optimal range of 12.5% to 13.5%,” OIR noted.

In terms of valuations, banks last trade at around 1.2x price per book, in line with past ten-year historical average multiple.

The people you want to reach are already in this room.

Every quarter, SBR lands on the desks of the founders, CFOs, and directors running Asia's most consequential companies. Every day, they open our newsletter and read our website. It's a room that took twenty years to build — and it's the one most of our partners are trying to get into.

The good news is that the door is open. We work with companies on thought leadership articles, sponsored content, industry summits across Southeast Asia, regional awards programmes, podcasts, and media placements in print and digital. The shape of the right partnership depends on what you're trying to do, which is why we'd rather start with a conversation than send a rate card.

If you have something this room should know about, tell us. We'll tell you honestly whether we can help, and how.

No rate cards until we understand the brief. It's a better use of everyone's time.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia